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A16z Supports Crypto Regulations Focused on Privacy to Harmonize Security and Innovation

A16z Supports Crypto Regulations Focused on Privacy to Harmonize Security and Innovation

Bitget-RWA2025/11/12 08:26
By:Bitget-RWA

- a16z Crypto urges U.S. Treasury to exclude decentralized stablecoins from GENIUS Act oversight, arguing they differ from centralized payment stablecoins. - The firm proposes control-based decentralization frameworks and privacy-preserving tools like DID/ZKPs to modernize AML/KYC regulations. - It emphasizes balancing compliance with innovation, noting <1% illicit on-chain activity and risks of stifling progress through overregulation. - With Treasury finalizing GENIUS Act rules by year-end, a16z's propos

a16z Crypto, the digital asset arm of Andreessen Horowitz, has urged the U.S. Treasury to clarify the reach of the

so that decentralized stablecoins are not included under its regulatory purview, contending that such an approach would encourage innovation without compromising security. In a letter dated November 4 to Treasury Secretary Scott Bessent, the firm stressed the importance of differentiating between decentralized stablecoins—created through autonomous smart contracts—and centralized "payment stablecoins" that fall under the new legislation.

The

, enacted in July 2025, sets out rules for payment stablecoins, mandating full reserve holdings, yearly audits, and giving holders priority in bankruptcy cases. However, a16z maintains that decentralized stablecoins, such as LUSD on Ethereum, function independently of any central authority and should face the same regulatory constraints.
A16z Supports Crypto Regulations Focused on Privacy to Harmonize Security and Innovation image 0
"Because decentralized stablecoins are not issued by a 'person' as defined in the Act, they fall outside the prohibition in Section 3(a)," the letter explained. The firm suggested using a decentralization standard based on control, similar to the , which excludes non-custodial activities from intermediary regulations.

In addition, a16z recommended updating anti-money laundering (AML) and know-your-customer (KYC) regulations to include privacy-enhancing technologies like decentralized digital identity (DID) and zero-knowledge proofs (ZKPs). Michele Korver, head of regulatory affairs at a16z, stated that DID systems allow individuals to manage their own data while still enabling authorities to identify illegal activity without compromising privacy. "Unlike conventional identity frameworks, decentralized digital identity minimizes

threats and prevents surveillance issues," Korver wrote, noting that ZKPs and multi-party computation (MPC) can authenticate transactions without disclosing personal information.

The company's recommendations reflect a broader industry shift toward privacy-focused solutions.

(ZEC), which leverages ZKPs for private transactions, has risen 1,172% so far this year, and projects such as Midnight—a privacy-oriented sidechain—are gaining traction among institutional investors. a16z also highlighted the necessity of balancing regulatory compliance with technological advancement, pointing out that illicit activity accounts for less than 1% of blockchain transactions and that excessive regulation could hinder innovation.

The Treasury's rollout of the

has received a mixed response. While and have praised the law's focus on stability, they have also sought clarification regarding restrictions on interest payments. a16z's advocacy for decentralized identity systems has found favor with crypto developers and privacy supporters, who view it as progress toward responsible, innovation-led financial systems.

As the Treasury is expected to finalize GENIUS Act rules by the end of the year, the debate between privacy and regulatory oversight is set to escalate. a16z's recommendations—such as exempting decentralized stablecoins and adopting cryptographic compliance solutions—could help position the U.S. as a leader in privacy-oriented digital finance, provided regulators choose flexibility over inflexible regulation.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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